Indian startup ecosystem today ranks amongst the top five in the world. Is it sustainable and is there further growth? Our startup story began over four decades ago, when IT service companies such as TCS, WIPRO and Infosys started their operations. They invested in technology and provided cost-effective technology services to clients across the globe. The startup industry currently employs more than four million people with a business turnover of nearly $150 bn. In the past decade, India saw a phenomenal increase in both numbers and diversity. It stands alongside the top five startup ecosystems in the world, the US, China, UK, and Israel. That said, only Bengaluru is among the top 20 startup cities in the world.
The Boston consulting group reports that India has a strong angel investor network engaging every major Venture Capitalist (VC) or Private Equity (PE) firm. This has resulted in nearly $20 bn of capital inflows, providing employment to about 100,000 people, with the number doubling every two years.
Some of the most successful start-ups in our country are Paytm, valued at 16 billion, Oyo Rooms at 10 billion, Ola Cabs at 6.32 billion, Byju’s at 5.75 billion, Swiggy, at 3.3 billion, Udaan, at 2.3 billion, and Zomato at 2.18 billion US dollars. They are all built on disruptive consumer value proposition. They bring convenience to the e-commerce marketplace, allowing payments through mobile wallets.
The new startups are proving to be alternatives to traditional mercantile communities and are supported by over 100 active incubators that help entrepreneurs experiment with new ideas besides offering them functional expertise and resources. Who sets up these startups? They are from premier engineering colleges and business schools, such as IIT’s, IIM’s and ISB’s, effectively curbing the brain drain that we saw in the past. Be that as it may, in the recent past, the startup ecosystem has been finding it hard to generate the requisite funds with investors asking questions on the sustainability of business models and their profitability. Even Byju’s, an established Indian multinational educational technology company breached the covenants of the $1.2 billion loan that it took in November 2022 when its various acquisitions and consolidation of assets went wrong.
There is a great transformation that has come about because of a few highly innovative startups in today’s marketplace. Whereas small and rural businesses earlier had a tough time marketing their wares, e-commerce companies such as Flipkart, Snapdeal and Shopclues have provided them the cutting edge.
Currently we have about 87000 start-ups. How many of them actually survive? As per the findings of a survey by the Institute for Business Value and Oxford Economics, 90% of them fail within the first five years, reasons being weak managements committing mistakes in multiple areas. Besides building products that no-one wants to buy, some give unrealistic discounts, leading to greater investments with low returns, eventually resulting in shutting shop.
Some start-ups even after attracting substantive venture capital investments failed, for they had no innovation even as they aped a successful western model with unrealistic goals. Excessive pressure brought upon to deliver, affected productivity resulting in diminishing returns forcing shut downs.
Startups are most likely to succeed when they start lean and are supported by considerable research and development. Extensive market experiments must precede before raising large amounts of capital. It must be recognised that some startups which have ‘social good’ as an objective may need longer times of innovation. Government must support them with extra funding and tax exemptions. Incentives on renewable energy, tax and depreciation benefits, capital subsidies, priority sector banking norms help the startup eco system. Setting up a SIDBI-run Electronic Development Fund (EDF) where the Indian Government is a Limited Partner (LP) is a great initiative.
E-retailing in the e-commerce domain is a great opportunity. The completely mobile younger generation, with access to smartphones, tablets and other such electronic gadgets are the real drivers of sustainable e-commerce business models. A recent HSBC report pointed out that e-commerce alone could create 12 million new jobs over a decade.
‘A little bit of good can turn into a whole lot of good when fuelled by the commitment of a social entrepreneur’, said Jeff Skoll, Founder, Skoll World Forum. That will need innovative strategies in areas such as literacy, skill development, healthcare, sanitation, financial inclusion and natural resources in order to address inclusivity.